Revealed: Magic Madoff’s family ‘piggy bank’ in the heart of Mayfair

Revealed: Magic Madoff’s family ‘piggy bank’ in the heart of Mayfair

1/3
Bernie Madoff

2/3
Bernie Madoff and his wife Ruth; Stephen Raven; Andrew Madoff

House of cards: Bernie Madoff and his wife Ruth; Stephen Raven; Andrew Madoff

3/3
Madoff's Berkeley Street operation in Mayfair

Upmarket: Madoff's Berkeley Street operation in Mayfair

On bail: Bernie Madoff

AS the financial centres in New York and London continue to grapple with the enormity of Bernie Madoff's $50 billion scam, a single question was increasingly being heard: is there anything left?

Across America, small investors, corporate high rollers and the monied elite wait anxiously to hear if any of the cash they gave Madoff survived his world record-breaking fraud. They were joined by two British banks who are in for £1 billion between them, the City's biggest hedge fund, Man Group, Nicola Horlick's Bramdean Asset Management and fund manager Arpad Busson, among others.

They all want to know what happened to their money. Madoff is out on $10 million bail, posted by his wife Ruth, and he was spotted last night in the window of his duplex on Manhattan's East 64th Street, smoking a large cigar. Understandably, his investors are asking how much Madoff squirrelled away for himself.

Cut to a quiet corner of Mayfair and a set of offices over a smart art gallery. Here, in Berkeley Street, is the headquarters of the US investment veteran's London arm, Madoff Securities International. Compared with his huge Lipstick Building in midtown Manhattan, 12 Berkeley Street is a modest, discreet address. That's exactly how Madoff likes it. A source told the Standard that this anonymous base in Mayfair is Madoff's "dynastic piggy bank".

He kept around £80 million in cash in the London firm and used it to fund deals to benefit himself, his wife Ruth and sons Mark and Andrew. The Berkeley Street office is a trading operation, which, by the standards of Madoff's fraud, appears to handle modest sums.But by the standards of even wealthy families it is a powerful money-making tool, worked by a hand-picked staff of 28 including top analysts and investment specialists.

At their head is one of the City's most respected names, Stephen Raven. He was at home in Esher last Thursday night, where he lives with his wife Felicity, when he flicked on the Bloomberg business news and, to his astonishment, discovered Madoff, his old friend and business partner, was accused of being the biggest crook - in money terms - of all time.

Raven is described by his friends as "old school". He is 70 now, although he retains the matinee idol looks for which many in the City remember him. He had a distinguished career before joining Madoff. He was on the London Stock Exchange Council for 16 years, sat on the board at Warburgs and was a founding director of Liffe.

The futures market brought him and Madoff together. The American was keen to do business in London and Raven became his chief executive here. The two, while of similar vintage, complement rather than resemble each other. My source said: "Stephen is charm personified. Madoff can be magnetic but there's a whiff of the backstreets there."

As Raven watched the Bloomberg report, he grabbed his phone and dialled New York. Every call went to voicemail. He left messages. As of last night, I was told, he was still waiting for an answer.

Raven was staring into blackness. He had spent his life building a reputation of integrity and probity. He ordered a swift statement for the media. It included this: "Our business activities are not involved in any way with the US asset management company with which the reported allegations appear to be concerned."

This is true. Madoff used Berkeley Street only to make money for himself and his family. No clients were involved. But Raven knew it would not be long before the question was asked: where did the money to trade come from?

According to someone familiar with the situation, Raven took a decision aimed at protecting the unsuspecting staff of the London office and himself. He froze the company's operations on Friday and called in the authorities. These included investigators from the Financial Services Authority and SOCA, the Serious Organised Crime Agency. SOCA takes a lead role in probing money laundering allegations. The source said: "Raven wants the operation scrutinised and cleared as quickly as possible."

Raven has stressed that all trading done from Berkeley Street was carried out with money provided by the Madoff family. Companies House records show the London firm has a share capital of just over £50 million, most of which is held by Bernie Madoff. He also holds the only voting shares.

The Standard was told the operating capital was just over £80 million. If the money is still there - and there is no reason at this stage to suspect it isn't - it may well form part of the assets Madoff's creditors will ultimately claim.

According to US reports, investors' funds were believed to have dwindled to around £200 million when Madoff was interviewed by FBI agents last week. There was a suggestion he had planned to distribute money among his family, friends and most favoured employees before turning himself in but there was no confirmation of this. It was confirmed, however, that he told his sons Mark and Andrew that investors were trying to withdraw $7 billion and the money wasn't there. They called in the FBI.

Madoff allegedly told investigators his financial empire was "all a big lie". He added that he had been running a Ponzi scheme - paying clients with money he took from new investors. The received version in the US and Europe was that his investors believed the steady and generous returns he gave them, often contradicting market trends, were the result of his uncanny acuity. They called him "Magic Madoff" and believed he had a secret and unique investing strategy.

As the Madoff affair continues to baffle even experts, there is wonderment that he managed to get away with his scam for so long. Madoff operated at many levels. He started his investment business in the 1960s, after raising $5,000 from working as a lifeguard in New Jersey and supplementing his income moonlighting as a fitter of sprinkler systems.

His first investors were family and friends and, even today, he has a strong core of clients who have known him for more than 30 years. They include Joyce Greenberg, from Houston, Texas, whose late husband Jacob was a successful businessman. She was introduced to Madoff by a stepbrother who knew him from college. Since the 1970s Madoff has handled her family's savings. Now she fears the money has gone. "We never questioned him," she said. "The bookkeeping all added up."

For people like Mrs Greenberg the statements she received from Madoff's firm seemed to make sense. They did, too, for the wealthy clients he acquired on his social circuit. Madoff and his wife were well liked in the Jewish communities of New York and Palm Beach, Florida. They own a £6 million house that belonged to the Pulitzer family in Palm Beach and they played golf at the local country club set up by wealthy Jewish residents in the 1950s.

Carl J Shapiro, a 95-year-old multi-millionaire and noted philanthropist, is a mainstay of the Palm Beach community. He and his son-in-law, Robert M Jaffe, 64, are long-standing members of the country club and backed Madoff's membership application when he joined in 1996. Shapiro and Jaffe are believed to have lost hundreds of millions of dollars through investing with their friend Madoff.

It was the same story at the Glen Oaks Country Club on Long island, where the Madoffs also played golf. Members here, too, were drawn into the legendary investment scheme but Madoff would not accept anyone. He seemed rather aloof about taking on new clients and his reserve only intensified enthusiasm for getting in on his lucrative act. Barbara Fox, president of a Manhattan estate agency business, said she "literally begged" him to take her money but he refused. Others who were not so lucky include Mort Zuckerman, owner of the New York Daily News, and Steven Spielberg, the film director, whose charity the Wunderkinder Foundation was a Madoff client.

So, too, were Fred Wilpon, owner of the New York Mets baseball team, Norman Braman, a major Florida car dealer, and Ezra Merkin, chairman of General Motors financing arm. All these people received Madoff's steady payouts of around 10 per cent a year on their money, apparently regardless of what the markets were doing.

These individuals, and many others, including the financial institutions that invested with Madoff, are sophisticated operators, backed by highly-paid professional advisers. How were they all so successfully duped?

The question is even more pertinent in the light of the warning signs that have been around for years. In 2001 journalist Michael Ocrant wrote a piece in the US that openly questioned Madoff's claims. The article, which has been on the internet for years, pointed to inconsistencies in Madoff's market-defying strategy. Ocrant wrote that "many expert sceptics" were bewildered and "were still grappling to understand how such results have been achieved for so long".

Not everyone ignored the warning. Jake Walthour, a principal at the hedge fund consulting firm Aksia, said his company had been engaged to investigate Madoff's dealings by a potential investor, shortly after Ocrant's article was published. Walthour told the Associated Press: "We decided there were several scenarios here, one of which is: this could be a Ponzi scheme. None of our clients invested."

Yet others flocked to Madoff. His personal wealth has proved hard to estimate but, as well as his Florida mansion and the Manhattan duplex, he also owns a large house in Roslyn, New York, and another on the beachfront at Long Island. He has a 55-foot fishing boat on which he likes to spend weekends with friends and favoured staff.

He is due back in court on Friday but there is no reason to imagine his bail will not be continued and that he will remain free, possibly for many years, as the legal complexities of his self-confessed con trick are unravelled. Madoff is assured his place in history. If nothing else, he will always be the man who proved Warren Buffet's adage that when the tide goes out, you see who is swimming naked.